Don Boudreaux and and Mark Perry have been doing a great job making the case against Trump's trade sanctions. But it is always a danger only to learn about opposing views from those who disagree with you, so in the spirit of Bryan Caplan's "Ideological Touring Test" I wanted to address directly some of the arguments in support of Trump's sanctions.

I followed several links to this article by Spencer Morrison. After reading the whole thing, I fear I have made the intellectual error of choosing a poor representative of the opposing side's argument, but I am committed now, so here goes.

Consider that China steals more than half a trillion dollars in American intellectual property every single year. This is one of the reasons America’s trade deficit with China is so massive. For example, in 2010 Chinese companies stole high-speed rail designs from American firms, thereby depriving them of hundreds of billions in potential revenues. Such theft occurs in nearlyevery industry, whether it’s software programs or branded consumer goods. And the worst part? We let it happen.

I find the author's figure absurd, and likely untrustworthy given his example. Following his high-speed rail design "theft" link one quickly finds that 1) Americans were not involved at all, which is not surprising since we really don't have high-speed rail manufacturing industry or expertise in this country; 2) the technology seems to have been acquired or copied legally; and 3) the real competitive issue for non-Chinese companies seems to be that the Chinese have extended and improved the technology.

This one paragraph essentially summarized the theme of the article, that technology is the key to increased well-being and that the US is poorer when they cannot monopolize the best technology. The first is true, the second is dead wrong and flies in the face of 200 years of history.

I won't spend time on the mass of the article where describes the economy in very production-based terms which I don't totally agree with, but his basic point is one I can partially accept -- that real economic growth over time comes from productivity growth. I agree that technology is part of the productivity equation, but unlike the author I also see other drivers such as trade (which he calls "noise"). Trade is a critical factor in productivity improvement as specialization and comparative advantage greatly increase productivity.

But where I think he really goes off the rails is to say that because technology is wealth-creating, we need to monopolize that technology in the US.

The core issue remains: we continue to offshore our advanced industries at an alarming pace, which will only increase the likelihood that the “next big thing” will be invented abroad. If we do not reverse this trend, we will soon be on the outside looking in.

It would be entertaining to discuss the origins of the American textile industry in the late 18th and early 19th century with the author, which were largely based on spinning jenny and powerloom designs that were literally stolen from manufacturers in the UK (countries don't own technologies, only individuals and their companies do). The UK at the time had strict technology export restrictions of which I am sure the author would have been approving.

So did the UK suddenly become poorer as America built a lively cloth industry? No, in fact the UK boomed along with the US. It turns out that spreading new technology and productivity techniques around more widely made everyone richer. This only makes sense. Would the West really be wealthier if they had kept all technology from spreading, and thus were surrounded by countries dominated by subsistence farming and medieval crafts? A skeptic might argue that the UK did eventually become poorer relative to the US and upstart Germany, but Andrew Carnegie could have told you why at the beginning of the 20th century. He went back and toured manufacturers in his old home and was horrified at how little they reinvested in new technology.

Which brings me back to Chinese high speed rail, the example he started with. Clearly the Chinese have a growing high-speed rail manufacturing industry, and they DIDN'T invent the technologies originally in China. This is what trade is all about. Rather than keep technologies locked up in a secret underground bunker in the Rockies, as the author seems to prefer, it spreads technologies around the world. Production then shifts around the world based on a variety of factors such as comparative advantage in ways that are hard to predict, but seldom has a strong relationship to the country in which the technology was first invented. One place production does NOT shift, though, is towards countries whose government has artificially raised critical raw material prices through border taxes on its consumers called tariffs.

Which reminds me, if the problem is China "stealing" things like high-speed rail technology, then why in the hell are we imposing steel and aluminum tariffs? What the heck does this have to do with technology transfer? In fact, if the US really had a high-speed rail industry we were worried about, or if one were exclusively concerned with the auto industry, the author is essentially telling them "we are sorry you had your technology stolen so to help you out we going to substantially raise the prices of your two largest purchases (steel and aluminum) so that you can be even less competitive internationally." Ahh, I can feel the economic growth from that already.

If the author wants better intellectual property protections for US companies and individuals, I am generally supportive of efforts to achieve this (as long as we don't over-specify intellectual property and end up again with endless patent troll suits). For all its flaws, though, joining the TPP seems to be a better path to this end (it actually addresses, you know, intellectual property protections rather than just raise steel prices for consumers).

To conclude, I love this quote from his article because, despite being anti-trade, he in fact is echoing the pro-trade observation by Steven Landsburg.

Yet our trade policy does exactly the opposite. After the North American Free Trade Agreement took effect in 1994, U.S. corn exports surged, as did our imports of automobiles. The problem is that automobile manufacturing is much more likely to benefit from disruptive technology than is growing corn—under NAFTA, the preponderance of long-run benefits went to Mexico, not the United States. The same is true with America’s trade relationship with China: America’s advanced goods trade deficit with China now tops $120 billion. Meanwhile, our biggest export is soybeans.

This is freaking awesome! We grow and sell soybeans and get back advanced technology products. Brilliant! No wonder we are the richest nation on Earth.

Postscript: So to save the time clicking through to Steven Landsburg, here is a part of what he said (via Carpe Diem):

There are two technologies for producing automobiles in America. One is to manufacture them in Detroit, and the other is to grow them in Iowa. Everybody knows about the first technology; let me tell you about the second. First you plant seeds, which are the raw material from which automobiles are constructed. You wait a few months until wheat appears. Then you harvest the wheat, load it onto ships, and sail the ships eastward into the Pacific Ocean. After a few months, the ships reappear with Toyotas on them.

International trade is nothing but a form of technology. The fact that there is a place called Japan, with people and factories, is quite irrelevant to Americans’ well-being. To analyze trade policies, we might as well assume that Japan is a giant machine with mysterious inner workings that convert wheat into cars. Any policy designed to favor the first American technology over the second is a policy designed to favor American auto producers in Detroit over American auto producers in Iowa. A tax or a ban on “imported” automobiles is a tax or a ban on Iowa-grown automobiles. If you protect Detroit carmakers from competition, then you must damage Iowa farmers, because Iowa farmers are the competition.

The task of producing a given fleet of cars can be allocated between Detroit and Iowa in a variety of ways. A competitive price system selects that allocation that minimizes the total production cost. It would be unnecessarily expensive to manufacture all cars in Detroit, unnecessarily expensive to grow all cars in Iowa, and unnecessarily expensive to use the two production processes in anything other than the natural ratio that emerges as a result of competition.

That means that protection for Detroit does more than just transfer income from farmers to autoworkers. It also raises the total cost of providing Americans with a given number of automobiles. The efficiency loss comes with no offsetting gain; it impoverishes the nation as a whole.

neal wigal:

Iowa is American. Japan is not. It is not a mystery if one gets out there and sees neighbors and the competition. Of course, neither would sell out their countrymen for a percentage.

The ones making the deals? That is just optics.

I am probably biased. Old damned hill person, just escaped indenture and hung out with the slave revolt. We mostly lost all land and title after the thirties, but hey, they managed to increase legal trade and taxes.

Growing beans for cars. Running moonshine for a Model T. I guess that is progress.

Bistro:

I would read the rest of the argument but you lost me at IP when you used it as justification for joining TPP. Didn't we already have international agreements on protecting IP? Is this like the idiots that want no guns on school grounds trying to pass more laws that make it even more illegal to do something protected by the first law of this land because more laws will somehow make it better?

I would also point out though that the Chinese have never found any need to steal our technology. We always have some corporation willing to sell it, at a discount even, to anybody that wants it. I think the only industry that doesn't is the bio-chem dual use corporations because they know they'd get a stern lecture and wrist slap when they are inevitably caught by the feds and 'punished'.

And also, is it stealing if your sheep wander into somebody else's fields? Think of the internet as a field. If you don't pen your sheep and they wander out, it's not theft.

Matthew Slyfield:

"Domestic: US buys $120 worth of steel from US. Result: US +$100 worth of steel, +-$0 cash." Wrong, if the US buys steel from the US, then the US already had the steel, so it's +- 0 steel as well as +- $0

Peabody:

Corporate espionage is definitely real, both domestically and internationally, and this includes technology. So while technology is often sold, it is definitely stolen at times. I will agree that when someone proclaims "they stole our tech!" probably not even 10% of the time was it actually "stolen".

Personally I view counterfeit goods as a larger problem. In general, I have no problem with competitors making cheap imitation products. However, when these goods are manufactured and marketed to fraudulently deceive consumers as to their origin and quality, then I have a problem.

GoneWithTheWind:

Dustin Barnard:

Sorry, this is really stupid. That would be true if we were producing steal then just somehow destroying anything that didn't sell within a certain amount of time. If no one is buying steal from the US then resources that would have gone to making steal here will be used to make something else. The value of the US's manufacturing output hasn't gone done, it's only gone up. We use fewer people to do it now, but we actually build more. If we're making less steel now, it's because people have better things to do. As others have pointed out, we have FAR more to lose from increasing the price of steel domestically than we have to gain from some small incremental amount of steel production in the US. Increasing the price of steel for domestic manufacturers will do them a lot of harm. If it's true that other countries are dumping steel on us by using subsidies to sell it to us below cost, great, we're essentially using their subsidies to bolster domestic manufacturing. Why would we want to stop that?

ColoComment:

Re: "level playing field."

Hypo: I have a finite number of dollars budgeted to spend on steel for my manufacturing business. For my money, I can buy xxx tons tons of steel from a relatively regulation-free China, or I can buy x tons from a U.S. steel manufacturer that runs a business burdened by a massive “wedge” (as Jude Wanniski described it) of taxes, regulations and other costly impositions.

Manufacturing in the U.S. (such as it once existed) is/was subject to multiple cost-increasing burdens such as federal, state & local income taxes, employee benefit costs, unemployment insurance taxes, related compliance accounting and preparation costs (audited financials for public companies cost multiple millions of dollars, not to mention the accounting and legal costs of compliance with the SEC and state securities authorities), real and personal property taxes, regulatory compliance costs for OSHA, DOL, EPA, FCPA & OFAC, possibly DEA and FDA, and a multitude of other compliance regulations.http://www.themanufacturinginstitute.org/Research/Facts-About-Manufacturing/Costs/Regulations/Regulations.aspx

A quick search didn't turn up any factual comparison of the regulatory costs of, for example, U.S. manufacturing v Chinese-based manufacturing, so if indeed there is "wedge" parity, I hope someone may please enlighten me. The news stories of toxic pet food, contaminated milk goods, poor air quality, and the like suggest that China has far fewer regulations on its manufacturers than the U.S., and thus a lower "wedge" burden affecting its costs and product pricing.

Which is not to say that U.S. regulations don’t make for a far better quality of life and environment, etc., but to suggest that there’s a “level playing field” re: free trade between the two countries seems grossly misleading. And, if it takes adding a fee to import lower-wedge manufactures that compete with higher-wedge U.S. manufactures, then maybe that's how one gets to the "level playing field" that everyone says should exist.

Joe - the non economist:

Numerous comments have been made about Reagan imposing tariffs. Though it should be noted that there was congressional discussion regarding the imposition of tariffs, so Reagan apparently imposed tariffs as a way that was less bad than the proposals in congress

My take on Trump's tariff talk is both attention getting and as a negotiation ploy, In effect, not likely to every be enacted

stan:

We have antitrust laws against predatory pricing for a reason. While consumers benefit from lower prices while the monopolist is driving the competition into bankruptcy, we recognize that longer term considerations are also important. Too often the extreme free traders are incredibly short sighted in their cheerleading for our consumers enjoying lower prices because foreign governments are subsidizing their businesses.

Steel and aluminum have national security importance. The world is a dangerous place. Not all our trading partners wish us well. Free trade extremists forget this.

Bistro:

Oddly enough, as I understand the law after the ENRON, Congress declared any inventory as capital goods that would be fully taxed if at inventory at the end of the year. I used to get calls from my vendors (DoD contractors) asking if I was planning on procuring any more $50,000 radios before the end of the year and if the answer was no from enough us they didn't build them and idled the work force and if I changed my mind later, tough, it could wait until they were back.

marque2:

You come up with a point many don't understand, and libertarian economists choose to ignore. If you are producing something 100% in the US, say $10 wholesale hammers, and the production gets moved china for a 50 cent discount, Consumers will benefit because of the 50 cent discount, but they also lose because they are now short $9.5 of economic activity.

Now there are offsets, if this discount created an explosion of hammer purchases, and this allowed other parts of our economy to work more efficiently (homes get built quicker because cheap hammers are more widely available) then there could be some offsets to this loss, but it has to be a pretty major revolution there.

karl_lembke:

This focus on technology sounds almost like a form of technological mercantilism. It seems to me mercantilism focused on money as wealth, and advocated gathering up as much money as possible and keeping it from others as the key to increasing wealth. Here we see an emphasis on doing the same with technology.

mlhouse:

I am going to repeat my argument in an earlier post since this is the direct question.

I am an economist by graduate degree and a free trader. But where does free trade exist on this planet. Even more important to me is the free market, of which free trade is just a subcategory. So, if another nation is engaging in practices that distort the market and create benefits for their exports that means that while it might benefit U.S. consumers with lower prices on some commodities, it also means that more inputs are going into the production of the subsidized commodity than there should be.

In other words, steel is produced in China that "should" be produced somewhere else, with the inputs used in Chinese steel production also used in a different manner that is more efficient.

I get the psuedo-free trade arguments and how cheaper, subsidized foreign produced primary inputs create opportunities for some entities because it is equivalent to them being subsidized. But how long can an efficient economy continue with such free market distortions? If U.S. manufacturing relies upon the subsidization of Chinese inputs, a decision of a foreign government, what happens to the U.S. economy when those decisions are reversed?

Agammamon:

"but they also lose because they are now short $9.5 of economic activity."

wut?

They are not short $9.5 dollars of economic activity - its just been moved from one place to another. Seriously. In fact, now we're *up* $9.5 dollars because not only do we still have the hammers, the people and equipment that were producing them can no go make something else on top of that.

To say that I 'lose' when trading with another country is to say that I lose when trading. Period. Because there is no difference between trading across a national border than across any other border.

StillAnOptimist:

If China were to stop "subsidizing" then the prices may go up (may). The real losers in this are Chinese customers/citizens - their Government takes from them and gives it to a few to produce goods so we can benefit. Japan did that in the late 70's, 80's - and there was panic in the US - when all that happened was that the Japanese people suffered more as the US enjoyed their products. Whether "free trade" exists anywhere is totally irrelevant - if others are willing to supply goods to us in return for funds that come back to us as investment why question their choices. I believe that the (THE) reason for the US to become the world's largest economy is because we were open to imports, exported our best, got out of industries that we were not as good at and so on and so on. By imposing tax on steel and aluminum, Trump will undo much of the boost to the economy - and yes, Democrats should rejoice. If I were Shumer or Pelosi, I would applaud Trump - and remind Trump to impose higher taxes on all imports - and hope that the economy gets strangled as prices rise and people suffer. All Shumer and Pelosi have to do is praise Trump for protecting "key" industries - and when Europe/China retaliate, ask Trump to double down - and watch as Trump's chances for reelection disappears.

StillAnOptimist:

The US is deficient in all sorts of "resources" - till recently, we imported most of the oil we need - Japan imports almost ALL of the oil they need - And does Saudi Arabia hold on to their oil so they can believe they are rich because they have the wealth underground? Should Saudi Arabia simply refuse to sell their "wealth??

marque2:

Right you posted the libertarian fallacy that the hammer maker is now free to be more productive elsewhere. Well sadly often when a job disappears there is no other job to go to. Often the rest of us now have to pay welfare benefits for the worker. Of course this is why libertarian economists are also against drug laws - because without opiods the folks in the Midwest and northeast who lost their jobs would have nothing else to do.

So the answer is even in this country false. And it was worse with 8 .years of slow economy and the folks aren't finding more productive jobs now even when the economy is hot.

marque2:

I think the point people fail to realize is this. Having tons of goods for us to buy from overseas doesn't make us richer. If China produced everything we get today for 1/10 as much and yet I (or none of us) don't have a job where I can produce something to barter for those goods (frequently money) than I still have nothing - unless you give me welfare.

Roy_Lofquist:

slocum:

This does not happen. There are basically no examples of 'monopolists' driving competitors out of the market with 'predatory' pricing and then jacking up prices afterwards. The reason that we have anti-trust laws is that declining firms have lobbied the government to protect them from better-run competitors. Remember when, after killing Netscape by giving Internet Explorer away, Microsoft cornered the market on web browsers and jacked up the price? Nope. In 2005, Microsoft's browser market share was 95%. What happened then? Well, not only did MS never charge a penny, it couldn't hold its share even when continuing to give it away. Want to guess its current share? If you said '3%' you win (or whopping 5% if you include it's new 'Edge' browser replacement):

slocum:

"If U.S. manufacturing relies upon the subsidization of Chinese inputs, a decision of a foreign government, what happens to the U.S. economy when those decisions are reversed?"

Every steel using business in the world need to be able to take advantage of low-cost inputs that are available. If U.S. industrial firms refuse (or are prevented from doing so because of tariffs), then those companies will experience lower profits and lost market share. Or they will shift more production offshore where they can make use of the low-cost inputs. What happens to these businesses if the Chinese stop subsidizing steel production? Nothing. Such a change would affect all steel-using businesses worldwide and would not disadvantage US-based businesses. Tariffs, however, definitely will disadvantage domestic manufacturers.

slocum:

So by that logic, the wealthiest countries are those that 'keep all the money at home' and never trade with anybody ever. In this way, they successfully prevent the money from 'leaking out' and making them poor? It's really hard to know where to begin arguing with that idea. Other than to note that this is called 'autarky'. Autarky is well known to be a recipe for poverty not wealth. The most dedicated practitioner of autarky in the world today is...North Korea. They call it 'Juche' there? Do you think we should adopt this great North Korean economic approach?

Or perhaps it would be better to look at it this way. If you think it's a good idea to keep the money in the country and not trade with foreigners, why would that be just as applicable to 'foreigners' in other states (why not keep the money at home in Ohio rather than trade with Florida)? And if that's good, too, why not do the same at the county level, or city level or census block level? Why not at the family level?

slocum:

"Right you posted the libertarian fallacy that the hammer maker is now free to be more productive elsewhere. Well sadly often when a job disappears there is no other job to go to."

In the short-term, a laid-off middle-aged hammer factory worker may have a hard time finding an equally good job (in his hometown anyway). But that's true regardless of why sales of hammers made by his company fall. They may fall because the overall market shrinks (perhaps fewer people are buying tools and doing their own work. Or perhaps more people are using pneumatic nailers instead of hammers). Or perhaps his company fails because a better-run competitor that makes hammers better and cheaper (and it doesn't matter if that competitor is the same country or not -- the effect is the same). Or maybe his own company isn't failing at all, but in order to keep up with competition, it installed new automated equipment that means it needs a much smaller labor force. The point is that there are a myriad of reasons and market forces that might result in the hammer maker losing his job. There's nothing special about international trade as a cause.

But in the long term? As a society we adapt and continue to get richer. At one point huge fractions of Americans worked in agriculture and domestic service (as household maids, cooks, etc). Many more worked in industries that no longer exist or are a tiny fraction of their former size. At one point, as many as 200,000 horses lived in New York City -- think of all the people whose livelihood depended on breeding, training, feeding, stabling, and cleaning up after all those horses! So were are the all the millions of unemployed maids, farm-workers, stable-hands, now? Or -- in the 1960s before automation, it took many more labor hours and workers to assemble a car than it does today and the number of auto-workers is down dramatically as a result. But unemployment is at 4% -- how is that possible with all those 'missing' jobs? Where are all the unemployed typesetters who used to work in newspaper printing plants? The unemployed folks who used to work in photo-processing industries? It's a mystery.

Aimless6:

You have a factory with 300 workers that uses hammers for a part of it's process. You can not fire any workers, you can only send them home with full pay. 3 of those workers make the needed hammers. But you can get a better deal from China where they only need 2 workers.

Now, you have a country with 300 million residents. It takes 20-25 years to breed, raise and train workers and they last about 25 years until they are used up. Even if they have no job, you still need to pay them enough to eat.

So, do you pay for 2 workers in China AND wages for the 3 workers without a job? And you MUST pay, either in wages, welfare or by building prisons. With 1% of the male population in prison, you can see what choice US congress made.

The 19th century option was to put the unemployed in the Army and start a nice little war.

Roy_Lofquist:

mlhouse:

Of course the real losers are the Chinese customers/citizens in those situation, but the other loser is the Free Market. These transfers, subsidies, and other trade manipulating strategies disrupts the way an efficient free market would allocate inputs to produce the commodities demanded by the market. Steel is produced in China, as an example, that should not be produced there. Something else should be produced instead and maybe that steel is produced in Canada instead of the U.S., but exported to the U.S. to manufacture finished goods like cars. But then, the Chinese place a 25% tariff on automobiles as well as other costs so trade is coninutously disrupted all throughout the world, not just the U.S.

StillAnOptimist:

Rationality almost always loses when it comes to issues like this - Logic tends to be irrelevant - people argue based on emotion. Remind them that oil has "national security" implications and yet Saudi Arabia AND others WILL sell us their oil/sold us their oil. The world is always a dangerous place - but also a safe place - and trade is what keeps the peace for the most part. Imagine if Europe/EU were to forbid the sales of Boeing airplanes and force all companies in the EU to buy from Airbus OR impose a 50% tax on Boeing airplanes OR impose a 50% tax on food imported from the US or ... Trade benefits both parties and impoverishing citizens of a country by taxing them more is insane indeed - but an argument that remains tough to make.

slocum:

No, it will disadvantage them in the DOMESTIC market just as much -- unless we go on to impose tariffs on everything containing steel and aluminum rather than just the raw materials. For example -- Lifesavers used to be made in Holland, Michigan. But the production was moved to Canada. Why? Sugar tariffs. But there are no import tariffs on candy, so it was a disadvantage to make Lifesavers in the U.S. due to the artificially high cost of sugar.

mlhouse:

slocum:

As if nobody ever changed careers during their working lives. Look, we KNOW that whole industries have died and been created in relatively short time spans and we also know that unemployment is 4%. So obviously workers and markets are much more flexible and adaptable than your crude model assumes.

Agammamon:

Right, you posted a mercantilist fantasy - that the hammer maker is never able to create value again. That his only worth in the world is his ability to make hammers and so when someone else can make them more efficiently he just curls up and dies.

KenG453:

Warren, you should have stopped with "After reading the whole thing, I fear I have made the intellectual error of choosing a poor representative of the opposing side's argument, but I am committed now, so here goes." There are plenty of better choices for representatives of the opposing side, as well as plenty of explanations about what President Trump is really doing with the whole tariff thing. You could start with "Art of the Deal."

b w:

But it still costs resources to retrain them, and a hammer making machine can't make something else - it has to be scrapped and a something else making machine has to be built, which again, is not free. The churn has a downside.

b w:

marque2:

Yes that is the cry - just learn computers and get a productive job. The answer is that not everyone can find a job that is more productive frequently they can only find less productive jobs or no jobs at all. Then they turn to drugs to relieve the bordom. But as an elitist - you wouldn't see that. Your government job will always be safe. Your friend at Goldman is still doing well - so it must all be lies.

John Dewey:

Marque2: “Consumers will benefit because of the 50 cent discount, but they also lose because they are now short $9.5 of economic activity.”

That doesn’t happen. The dollars we spend on imports come back to the U.S. Those dollars might be spent on U.S. goods - either to take back to their home country or to invest in operations in the U.S. Or those dollars might be used to enable U.S. government spending for American made fghter aircaft. Or those dollars might be used to buy equities from American retirees such as me, who use it to eat at American restaurants or to buy cars made in San Antonio. No matter how many times our dollars get exchanged overseas, they still eventually come back and help U.S. economic activity.

marque2:

The dollars come back as purchased US companies and property. In my house it is the same. If I spend more than I earn dollars still flow back into my household until the spending and money are equal. Incertai ly wouldn't recommend that for my family. I don't recommend selling the country to hostile adversaries either. You realize these trite libertarian economists pithy sayings are just designed to keep the elite in gravy while telling the unemployed riffraff that their unemployment is all their own fault.

John Dewey:

When I sell my shares of Apple, it certainly makes no difference to me whether an American or an Englishman or. Saudi purchases them. And it certainly should make no difference to you. But that’s not the point you were arguing, though I’m not surprised that you are trying to change the subject.

You argued that “they”, which I assume you mean Americans, will lose $9.5 of economic activity if American consumers buy $10 of foreign goods. And that argument would only be true if those American dollars were buried in a tin can in Chinese or British or Mexican soil. But that is not what happens. U.S. dollars return to the U.S. economy, either directly or indirectly, and help drive the economy, either directly or indirectly, when they return.